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Oil set for weekly slump on concern about economy and oversupply

Dec 21 2018 12:46

Grant Smith and Heesu Lee, Bloomberg

Major oil trading houses are predicting the return of $100 crude for the first time since

Oil was poised for a weekly loss on concerns that weakening economic
growth and surging US supply will lead to a surplus next year,
overwhelming OPEC’s efforts to stabilise the market.

Futures fell 0.6% in New York, headed for the biggest
quarterly drop in four years. Crude joined a sell-off in wider financial
markets after an interest rate increase by the Federal Reserve and the
threat of a US government shutdown added to economic uncertainty.

Meanwhile, investors remain skeptical that cuts agreed by OPEC and its
allies are sufficient to avert a looming oil glut.

Crude is heading for its worst quarterly loss in four years on fears
the relentless expansion in American shale will undermine efforts by
OPEC and its partners to balance the market. Concerns over growth
persist even as Fed chairperson
Jerome Powell promised to be more cautious on raising rates next year,
while a closely watched speech by Chinese President
Xi Jinping offered no new reforms to stimulate the world’s
second-largest economy.

"It’s a bears’ world," said
Stephen Brennock, an analyst at PVM Oil Associates. "At the heart of
this subdued backdrop is a bearish bias on the supply side,” while at
the same time, “oil demand prospects have dimmed as storm clouds gather
over the global economy."

West Texas Intermediate for February delivery was at $45.60 a barrel
on the New York Mercantile Exchange, down 28 cents, at 11:20. The US benchmark was poised for a weekly loss of 11% -
the biggest in almost three years. The contract fell 4.8% to
close at $45.88 on Thursday. Total volume traded was about 18%
above the
100-day average.

Brent for February settlement slipped 48 cents to $53.87 a barrel on
London’s ICE Futures Europe exchange. The contract fell 5.1% to
$54.35 on Thursday, closing below $55 for the first time in more than a
year. Prices are down 9.9% for the week. The global benchmark
crude traded at an $8.19
premium to WTI.

Oil’s slump persisted this week on broader market turmoil spurred by a
plunge in global equities after the US central bank lowered the
forecast for 2019 economic growth to 2.3% from 2.5% in
September. While policy makers
scaled back the number of rate increases they see next year to two, from
three that were anticipated in September, that’s still more than
investors expected.

Meanwhile, President
Donald Trump insisted on funding a wall or other barrier along the
southern US border, refusing to sign a stopgap spending bill that
would have
averted a government shutdown by midnight on Friday.

OPEC and its allies will give
greater clarity on their strategy to stabilise oil markets on Friday by
publishing a list of production cuts agreed by each country, according
to people familiar with the matter. The figures to be published are in
line with expectations, showing that participating nations will curb
output by about 3%, mostly from October levels, delegates said.